Submitted: March 25, 2014
R. Bruce McNew, Esquire Wilks, Lukoff & Bracegirdle LLC
Matthew E. Fischer, Esquire Potter Anderson & Corroon LLP
Bruce E. Jameson, Esquire Prickett, Jones & Elliott, P.A.
This action arose out of the acquisition of The Hallwood Group Incorporated (the "Company") by Defendant Hallwood Financial Limited. The remaining issue from the settlement hearing is the fee to be awarded to Plaintiff's attorney for the supplemental disclosures. The Defendants concede that a fee of perhaps $100, 000 is warranted, but they do dispute Plaintiff's entitlement to the fee of $400, 000 which he seeks.
The major area of disagreement involves the banker's book which was provided to the Company's shareholders. The parties' debate about the cause of the release of the banker's book can be traced back to a failure to communicate. From the Plaintiff's perspective, his counsel suggested release and, without further comment on behalf of the Company, the release occurred. From the Company's perspective, it always intended to release the banker's book and its release was delayed by reasons beyond the Company's control. Thus, when the settlement agreement was negotiated, the Company did not realize that the Plaintiff believed that he was entitled to credit, while the Plaintiff had a plausible basis to believe that he was deserving of credit. In addition, even if the Plaintiff was not the cause in fact, he argues that the Defendants have contractually agreed that he should receive credit for its disclosure.
In seeking to determine an appropriate attorneys' fee for shareholder litigation, the Court is called upon to balance several factors, including the time and effort spent by Plaintiff's counsel, the relative complexities of the litigation, the standing and ability of counsel, the contingent nature of the litigation, the stage when the litigation ended, whether the Plaintiff can rightly claim all credit for the benefit, and the size of the benefit.
The Court's attention is usually focused upon the most important of these factors, the benefit achieved. In this instance, the major question is whether the Plaintiff can rightly claim credit for disclosure of the banker's book. The other factors can be addressed quickly. Plaintiff's counsel devoted approximately 220 hours to this litigation before achieving settlement, and roughly half of that time may fairly be allocated to disclosure-related efforts. There were several issues to be addressed in the course of this litigation, which took some time, but the complexity of this litigation was typical for cases of this nature. There was very little, if any, litigation expressly regarding disclosure. The standing and ability of Plaintiff's counsel cannot be questioned. The fee arrangement was contingent. This case was far from trial when it settled.
As part of the settlement process, the parties sought to identify (and to agree upon) the benefits for which Plaintiff could take credit. If doing so clearly was the objective, they unfortunately were not successful. According to the Stipulation of Settlement (the "Stipulation"), at paragraph 23(b):
The Parties acknowledge that the Company revised the Preliminary Proxy to include, among other things, supplemental disclosures pursuant to alterations suggested by Plaintiff (which supplemental disclosures are set out in a blackline, dated January 15, 2014, sent to Plaintiff's counsel) (the "Supplemental Disclosures").
Among changes to the Preliminary Proxy were "alterations suggested by the Plaintiff." In December 2013, Plaintiff's counsel had conveyed his "belief" that the banker's book should be disclosed. He did not propose text that would be the basis for disclosure of the banker's book. Counsel for Defendants, on January 15, 2014, transmitted to Plaintiff's counsel a redline version of the Proxy Statement that, at page 19, reported that the analysis report by Southern Securities (i.e., the "banker's book") would be attached as an exhibit to the Schedule 13E-3 that was being filed at the same time. In the transmittal email, Defendants' counsel referred to "revisions based on your [Plaintiff's counsel's] comments."
A debate that may focus on the difference between "revision" and "alteration" is not particularly helpful. Defendants planned, according to the affidavits of W. Alan Kailer, Esquire, counsel to Hallwood Financial Limited, before Plaintiff's counsel's expression of his belief regarding release of the banker's book, that the banker's book would be provided to the Company's stockholders. These affidavits assert that the Company had intended to provide the banker's book all along, that release of the banker's book was delayed because the financial adviser's business unit had been disbanded, and necessary approval for its public release had not been obtained. Specifically, Defendants rely upon the SEC requirement that the banker's book be provided when a controlling shareholder, such as Defendant Anthony J. Gumbiner with his roughly 65 percent control of the Company, is orchestrating a going private transaction.As anticipated, a few days after Plaintiff's counsel's email, the SEC recommended that the banker's book should be disclosed.
The Court's attention must be directed to what the parties agreed. They thought that they had memorialized Plaintiff's accomplishments. The documents suggest a role performed by Plaintiff's counsel, but there is a parallel and different story that can be supported both by reference to the settlement documents and to extrinsic evidence. Effectuating the parties' intent, which is the goal of the Court, requires the Court to allocate ...